Digital Gold Market Stalls Despite Innovation Due to Structural Hurdles

The report noted that gold has already undergone meaningful digitalisation, with trading, clearing and recordkeeping now largely electronic. A growing range of digital gold products is also available in the market.

It stated, "Despite growing interest and a widening range of formats, the market for digital gold remains small relative to the overall physical gold market".

The report attributed this to a combination of product development challenges and barriers in market adoption.

It highlighted that the current gold market is still largely organised around the handling, storage and movement of physical gold, which creates multiple challenges for issuers of digital gold products.

One of the key challenges identified is the fragmented vendor landscape and lengthy setup process. Launching a digital gold product requires coordination among numerous specialised providers across physical operations, technology, compliance and distribution.

This often involves engagement with multiple stakeholders and regulatory authorities across jurisdictions, leading to long timelines and high coordination risks.

The report also pointed to ongoing operational complexity. Even after launch, issuers must continuously reconcile digital and physical gold balances, ensure compliance with KYC and AML norms, maintain liquidity and redemption systems, and conduct regular audits.

These requirements remain fixed and resource-intensive, limiting flexibility and slowing down product improvements.

Another major constraint is the challenging economics of digital gold products. The report stated that upfront development costs can run into tens of millions of dollars before generating any revenue, making it difficult for new players to enter the market. High operating costs further result in fragile unit economics, which improve only at very large scale.

Legal fragmentation across jurisdictions is also a significant hurdle. Issuers must navigate complex and evolving regulatory frameworks, with uncertainties around asset classification, custody, redemption rights and cross-border operations. The lack of standardised legal structures increases compliance costs and delays product launches.

In response to these challenges, the report proposed "Gold as a Service" as a potential solution. This approach aims to modernise how gold integrates with the digital financial ecosystem while preserving its core characteristics.

So, the report emphasised that while digital innovation in gold is progressing, structural and regulatory constraints continue to limit its scalability and broader adoption.

- ANI